Housing Developers Find New Opportunities in Old Motels
The continued affordability crisis in many U.S. cities has brought a new opportunity to housing developers: converting aged and underutilized motels into housing for low-income and homeless residents. Cities and developers have embraced the motel-to-housing solution for these difficult-to-house populations as the housing affordability gap has widened1 and more than half a million people go homeless each night, according to a 2019 White House report.2
One such community is Santa Rosa, California, where the Palms Inn has been turned into homes for more than 100 formerly homeless people, many of them military veterans, and St. Vincent de Paul of Sonoma County plans similar supportive housing at the Gold Coin Motel.3
In Santa Ana, California, Community Development Partners turned an old motel into 72 units of permanent, supportive housing for the homeless. According to Bisnow, the re-purposed property features a community dining room, outdoor courtyard, laundry facilities and on-site resident services.
In Memphis, a for-profit Florida-based company, One Stop Housing, is transforming “blighted” and “crime-prone” motels into housing for transitional tenants, fixed-income elderly people, veterans, and working-class residents.4 Other communities that have looked to motels as opportunities to add housing include Salt Lake City, Utah and Burlington, Vermont.
Unaffordable Housing Hot Spots
The U.S. has a "widespread shortage" of rental housing that low- and extremely low- income households can afford, according to a 2019 report from the National Low Income Housing Coalition (NLIHC). For every 100 extremely low-income renters, only 37 rental homes are available and affordable, the report stated.5
While every U.S. state is affected, certain states have more severe problems than others. The most troubled are Nevada, California, Delaware, Oregon, Arizona, Colorado and Florida.
Advantages of Converting Motels
With land values and construction wages on the upswing, motel conversions can make sense for housing developers, according to Bisnow. Motels are an easy target because the infrastructure already exists around them.
Moreover, mid-priced hotels and new short-term rental business models have dampened demand for inexpensive roadside lodging. Some 61,000 motels operated in the U.S. in 1964. By 2012, that total dropped 73 percent to just 16,000, according to Smithsonian Magazine.
Motel to Housing Challenges
Motel conversions aren't without challenges for developers and owners. Some owners of aged motels don't want to sell their property. Older motels may be rundown, but still operating profitably as lodging establishments.
In Los Angeles in 2018, officials approved an ordinance that will make it easier to convert motels into transitional housing and supportive housing, but other cities have been reluctant to embrace this opportunity. Some cities don't want to change zoning requirements to allow motel-to-housing conversions because they'll lose occupancy taxes. Other hurdles can include historic preservation restrictions and ordinances that require a minimum number of parking spaces per residence. Organized neighborhood opposition is another hurdle; existing residents are concerned about how low-income or shelter housing may affect their property values. As such, issues like transients, crime and neighborhood blight may be raised.
In some cases, aged motels are too costly to renovate due to asbestos, lead-based paint or other natural or environmental hazards. Lengthy permitting processes, environmental hearings and public information meetings can be challenging for developers as well. Converted motels that rent to convicted felons and people with poor credit histories may experience high rates of tenant turnover, making these properties costly to operate.
The bottom line is that motel-to-housing conversions aren't easy wins for housing developers, but they can be attractive opportunities for those who are motivated and want to make a difference in their communities.
To learn more, contact Rob Likes, National Director at Robert_L_Likes@KeyBank.com or 801-297-5811.